The Crisis in Nicaragua in Terms of Economic Losses

HAVANA TIMES – In human terms, the most terrible thing of the government repression in Nicaragua are the more than 210 lives cut short and more than 1,500 injured, but also the economic cost to the whole country is very high.

Just over two months after the protests against the government of Daniel Ortega began, the semi-paralyzed economy of Nicaragua accumulates losses estimated at more than 1.9 billion US dollars in tourism, construction, trade and finance, said economist Adolfo Acevedo in an interview with dpa news.

Acevedo said lost profits are already close to the amount of exports in 2017, which totaled 2.548 billion dollars, not including the income generated by the free trade zones.

The most affected industry is tourism, due to the stampede of foreign visitors since last April 18, when deadly government repression of a peaceful student protest triggered a civic rebellion and the worst political conflict the country has experienced in decades.

The National Chamber of Tourism estimates 170 million dollars in losses thus far in its sector in two months, plus 60,000 jobs lost as many facilities have closed or are open with a skeleton staff. The exclusive Mukul Hotel, a paradisiacal resort on the Pacific, announced its indefinite closure last Friday, in just one of many examples of the demise of what was a growth industry.

Acevedo noted that another hard hit sector by the crisis is residential construction, which in 2017 experienced a 15 percent drop and this year will have a severe collapse, with the corresponding reduction in jobs.

Commerce, which had shown dynamism in 2017, has also been affected by citizen insecurity and the terror caused by the assaults, looting and raids of young people by the police and paramilitary forces. Many people are holding back on any purchases beyond basic needs.

“People have restricted consumption to a minimum because there is great uncertainty, which leads to the fall of private investment,” said the economist.

Another hard-hit field is real estate with values plummeting as what was supposedly “the safest country in Central America” is now a dangerous place to work and live.

At the regional level, trade with Central America was affected by the presence of more than 140 roadblocks of peasants and students. Almost 5,000 cargo vans were stranded for weeks on the main routes of the country. At this point traffic is temporarily being allowed to advance.

The losses in the sector are estimated at more than 700 million dollars, not including the tax revenues that the Nicaraguan State has failed to receive in two months.

Acevedo estimated that, as a side effect of the crisis, open unemployment, which hovered around 90,000 people in 2009, could rise to 130,000, a figure equivalent to ten percent of the active economic population in a country of just seven million inhabitants and with a structural underemployment of 70 percent.

Acevedo considered “very serious” the flight of 654 million dollars in bank deposits (12.1 percent of total deposits), another consequence of the state of generalized uncertainty.

He said he considered it likely that part of the withdrawals were made by state institutions, “as a form of government pressure on the private sector” to undermine their support for sectors that demand the departure of President Daniel Ortega from power.

Acevedo warned that net international reserves fell from 2,930 million dollars to 2,827 million last month, as the Government made withdrawals from the Central Bank, possibly to offset a fall in tax collection.

Although the reserves still represent 2.8 times the monetary base and cover 3.7 months of imports, the Fitch agency lowered the credit risk rating for Nicaragua a few days ago, from B (stable) to B- (with negative perspective).

According to the economist, it is possible that it will be reduced to CCC (vulnerable and very dependent on the economic situation) in the next weeks or months if conditions continue to worsen. 

On economic growth, officially estimated at four percent for this year, Acevedo estimated that it could fall to a -1 to -3 percent by the end of 2018.

He did not rule out that the situation affects companies in the free trade zones, maquilas of foreign capital that could leave the country due to insecurity. Losses are also expected in the production of agricultural exports such as meat, sugar and dairy products.

According to Acevedo, the impact of the current crisis could be compared with that of the great global recession of 2009, when Nicaragua’s economy fell by 3.3 percent and private investment by almost 40 percent. “Only that time was not accompanied by the anguish and pain we experience now,” he said.

On the possibilities of economic recovery, he indicated that the solution requires a change of government as soon as possible. “The economy can only work with public institutions that provide security, confidence, stability and protection, and these are doing the opposite,” he said.

The crisis in Nicaragua has thus far left at least 212 dead and 1,337 injured according to the most recent report of the Inter-American Commission on Human Rights (IACHR).